This is how regulations and inflation are affecting BNPL

By Puja Sharma

Buy Now Pay Later (BNPL) payment offers several benefits equally to the customers and the merchants. Among the commonly mentioned perks for merchants, there is sales conversion, as BNPL-accepting retailers have seen growth in revenues in the past couple of years.

The UK government announced last month that it will require BNPL providers to conduct credit checks on users of its services and register with the Financial Conduct Authority, but this may not take effect until 2024, as reported by IBS Intelligence.

Also, one in five retailers is concerned about exposing their business to credit risk, as they lack an understanding of how BNPL works. To the point that, according to the report, one-third of respondents (37%) said that nothing would encourage them to begin accepting a Buy Now, Pay Later service.

Impact of inflation on BNPL payments

With inflation creating the biggest cost of the living crisis to hit UK consumers in decades, it is in the interest of retailers to provide payment choices. Offering multiple options to the customers and allowing them to better manage cash flow with services like BNPL could turn into a competitive advantage.

With 41 percent of buy now, pay later users having missed at least one repayment this year, customers are falling behind amidst the ongoing cost-of-living crisis.ù

Ron de Bos, Director of Product Management – Payments at Digital River, said, “As inflation worries persist, buy now, pay later is becoming a tool for some shoppers to try to fit higher prices into already stretched budgets. It’s not sustainable as a long-term strategy for navigating higher prices, but it could ease the financial pinch in the short term.

“As with any financial tool involving debt, consumers need to keep track of their overall debt load. Responsible companies and merchants should ensure they are educating consumers about what BNPL is and what it is not.

Ultimately, consumers make their own decisions, including whether to take on debt. Consumers already can put their bar tab on a credit card. If they decide to do the same with a BNPL option, they are obligated to account for it in their budget and pay it off, just as they would with their credit card.

“Consumers should always consider BNPL as a debt obligation that should be taken seriously.”

In the meantime, in India…

The RBI proposed that since BNPL services have developed into a new payment mode, they would figure alongside the existing payment modes like cards, UPI, and net banking. This novel method shall be examined during Payments Vision 2025, and the issuance of appropriate guidelines on payments involving BNPL shall be explored.

Through this new channel, which is facilitated by a few payment aggregators, payments between BNPL customers and merchants are routed through the existing nodal account. The central bank says it will examine the new method and issue guidelines on payments involving BNPL.